Is NJ's Film and TV Tax-Incentive Program Ready for Prime Time?

This past summer, after a year-long freeze on the state’s film and TV tax-incentive program was imposed, "Law & Order: Special Victim's Unit,” packed up its sets from its rented studio in Hudson County and moved across the river to Chelsea Piers in Manhattan.

For each of the past 10 years, the popular drama had contributed more than $55 million to the local economy in North Bergen and directly employed more than 200 people.

The tax incentive program is only supposed to be on temporary hiatus, but a bill that was voted out of committee in both houses this week would make sure the incentive is not just restored but extended.

The bill would increase the annual program cap for the film production tax credit from $10 million to $50 million and for the digital media production tax credit from $5 million to $10 million. The proposed legislation also provides for a tax credit equal to 22 percent, instead of the current 20 percent, of eligible production expenses, if the expenses represent purchases of goods from businesses located in Urban Enterprise Zones (UEZ) or purchases of services performed by residents of a UEZ.

The fate of the legislation -- and the tax credit -- hinges in part on a study of the economic effectiveness of the program. That study is reportedly complete, but findings are yet to be released, which is worrying proponents of the tax credit program. Although they believe that the incentives can bring a significant boost to the economy, they fear the Christie administration might be delaying the report’s release because of short-term concerns about the budget crisis.

In the Money

The TV and film industry can mean a lot of money to New Jersey, according to proponents of the bill. The Motion Picture Association of America (MPAA) says there were nearly 7,000 production-related jobs in New Jersey in 2008, which paid a total of $511 million in wages.

Those figures help explain why some 40 states have incentive programs to help convince the film industry to locate projects in their states. The competition is heating up. "The Walking Dead," a surprise hit for the cable network AMC, was shot on location in and near Atlanta, lured by a tax credit of roughly 30 percent. ABC’s “Detroit 1-8-7,” a cop show, came to beleaguered Michigan and the Motor City to film, also drawn by tax incentives.

But New Jersey has an advantage that many states do not: its proximity to New York’s talent pool and a ready supply of businesses and labor that exist to offer industry support. For instance, 50 percent of the members of Local 5 of IATSE, which represents stagehands and technicians, live in New Jersey. And there are more than 1,400 production-related businesses in the state -- like Movie Time Cars, a film transportation company in North Arlington, and Miller Camera Support in Cedar Grove.

"Our 20 percent [tax incentive] goes a long way here because it’s less expensive to do business in New Jersey, and we have a tremendous amount of infrastructure that doesn’t have to be imported," said Steve Gorelick, executive director of the New Jersey Motion Picture and Television Commission. "You don’t have to put everyone up in a hotel as you would in other parts of the country -- and we’re told that by executives in California."

The tax credit is also designed to entice digital media companies and projects to the state. Digital media, according to Brian O'Leary, senior vice president of
NBC/Universal, includes interactive sites, video games, simulation technology and the like.

"If you look at other states, the digital media market has been a big target for these incentives," said O'Leary. "For companies like ours, without expanding into the Internet, we don't have a future."

Is the Incentive Working?

Still, the question that needs to be answered is whether the tax incentive really does make a difference. Statistics seem to show that the program is working. There was an uptick in film production in the state from 2006, when the program launched, to 2008, according to a report by the MPAA, said Sen. Paul Sarlo (D-Bergen), one of several sponsors of the bill, named the Garden State Film and Digital Media Jobs Act.

The MPAA said that in 2008, there were nearly 7,000 production-related jobs in New Jersey, a 14 percent increase over 2006. And New Jersey had one of the highest number of production jobs in the country, outside of California and New York. Those jobs paid a total of $511 million in wages, averaging $74,000, "significantly" above the statewide average of $55,000, according to the MPAA.

With Christie looking to balance the state’s budget, the freeze was meant to allow time for a formal economic study of the program. The state Economic Development Authority commissioned the report at the request of the governor to find out how effective the film tax incentive program, which attracted $114 million in revenue in 2008, is to the state.

"The study being done by the New Jersey Institute of Technology [NJIT] will analyze whether it’s good economic policy for the state," said Gorelick.

"They’ve done an intensive analysis, and hopefully that will be very helpful in allowing the administration, the legislature, to make future decisions regarding the program," he said. "Has it attracted production? Very clearly."

The tax-incentive report, conducted by NJIT’s Michael Ehrlich, was submitted to the state Treasury Department last month. Its findings haven’t been released yet.

That has Assemblyman Albert Coutinho, (D-Newark), chairman of the Assembly commerce and economic development committee, worried. Coutinho also is one of the sponsors of the tax incentive bill.

Several people, including Coutinho, said they have heard that the report is favorable to the film tax incentive program. But Coutinho and Sarlo are wondering why the report hasn’t been made public yet.

“It concerns me when a study is being sat on and revised,” Coutinho said. "Possibly they don’t like the conclusions of it. I’ve been told the study completely vindicates the program… and it does concern me to a certain extent why it hasn’t been released.”

Gov. Christie In Context

Gov. Christie wants to see the report before drawing any conclusions.

Speaking in general about job bills on the table, he said, "I want to consider everything proposed in the context of the budget. I won't judge any of these bills until I can judge it in that context."

Christie added, "The way we get in trouble is we pass a balanced budget and then afterward pass all these supplementals that pile more and more money on top, and then we have a deficit."

The film commission's Gorelick deemed New Jersey’s tax incentive program a success as-is, and stressed that its applications for tax incentives are carefully monitored. Film and TV producers are eligible for a 20 percent tax credit on expenses that they incur in New Jersey, and they have to spend 60 percent of their budgets, minus post-production costs, here in the state. And if they do post-production in-state, that also can be applied toward a tax credit, according to Gorelick.

A company applying for the tax incentive must have its total expenses and New Jersey expenses certified by a CPA, and then those numbers are reviewed by the state Economic Development Authority and ultimately by the state Division of Taxation.

"So we have a very careful procedure to ensure accuracy and to make sure that all the expenses are qualified expenses and that they were in fact incurred in New Jersey," Gorelick said.

Gorelick pointed out that New Jersey’s 20 percent tax incentive is “not on the high end” of what some states, such as Michigan, are offering production companies.

Competition to attract film and TV shows, and their spending, has grown so cutthroat that this past Monday California launched a marketing campaign to lure back movie and TV projects, which are increasingly shooting in places such as Michigan, Louisiana and New Mexico, according to The Los Angeles Times.

Period Pieces

The issue of where to film is a complex one -- and tax incentives are just one part of it.

For instance, Bruce Richmond, HBO’s senior vice president of West Coast Production, confirmed that HBO's popular series "Boardwalk Empire" considered shooting in Asbury Park but decided to build a set and recreate Atlantic City in Greenpoint, Brooklyn, for reasons having little to do with tax incentives, since the decision was made before the moratorium.

"That was a component," he said, "but at the end of the day you put all of those pieces together, it was a more financially plausible to shoot in New York," which offers a 30 percent tax incentive.

Richmond added that tax incentives are an important factor when HBO is deciding where to shoot a project.

"Listen, the incentive is a major component for us when we’re looking at any period piece like this," he said. "It’s hard to pull off these period pieces without looking at an incentive component for television" because every dollar counts in these productions. They are quite expensive to produce.

Destroying the Program

Sarlo said he doesn’t understand why a self-proclaimed pro-business governor like Chris Christie has clamped down on the program.

"It’s a very successful program that the governor destroyed," Sarlo said.

"The administration is being short-sighted on this," he said. “You need to make an investment in order to attract the high-tech jobs and you can’t just look at it from Hollywood and glitz and it’s the actors. It’s the support staff, the electricians, the carpenters, the audio folks, the makeup folks. Then you have the whole ancillary business, the Home Depots, the caterers and the dry cleaners and the local hardware stores [that benefit]. And there’s property tax relief: Towns make revenues. Many of the towns have ordinances where you have to pay a fee."

Republicans don’t necessarily agree. Among the naysayers is Assemblyman David D. Wolfe (R-Ocean and Monmouth).

"Many states that subsidize television and movie production are pulling the plug because the funding is unsustainable and the benefits are dubious," said Wolfe, a member of the Assembly Budget Committee. "Perhaps New Jersey’s experience has been different, but we should wait for a subjective report to have an answer whether this program creates jobs here."

Still, economic times are hard. Similarly cash-strapped states across the country, trying to trim their budgets, have put their film incentive programs under review, and sometimes, attack.

A report commissioned by the Michigan Senate Fiscal Agency in September charged that the state’s generous film tax incentive, up to 42 percent, was only producing 10 cents in incremental tax revenue for each dollar given to filmmakers.

The program’s proponents, including Michigan Gov. Jennifer Granholm, rebutted its findings, noting that in its first two years the program had created more than 7,000 production jobs and by year's end the film industry will have invested $648 million in the state.

"Our issue with this report is... that this program was never designed to fill the state coffers," said Michelle Begnoche, a spokeswoman for the Michigan Film Office. "It’s an economic development program. And that study looked only at tax revenue going out and coming in, without looking at the economic impact in these communities."

In Iowa, Gov. Chet Culver wanted his state’s film tax incentive program scuttled when a criminal probe found that its tax credits had been misused.

New Jersey’s experience is different, say Democrats, and it would be unwise to squander the opportunity. "We cannot simply cut our way out of a recession," said Coutinho, "We need to grow out and this is a job creation program, let there be no mistake about it."